Sunday, September 28, 2014

If I ask my students whether they find RE to be plausible, they almost all answer "no."But suppose I ask them a different set of questions:
1. Do you expect to get back all the Social Security that you have been promised?
Almost all say they expect less than what has been promised.
2. Then I ask whether that perception affects their willingness to save money for retirement, outside of Social Security.
Almost all say they are more likely to save for their retirement because of the perception that Social Security is on the road to bankruptcy.

It is often surprising how we fool ourselves about our behavior and the behavior of others. We often think that people ignore incentives when they incentives have ways of working out.

Moral hazard can work out very subtilly. Often it does not require everyone to respond just on the margins. One example that I like is that you let banks fail the most conservative people would end up with more money and power relative to the risk takers and they would end up with more control of the economy.

Another example is crime deterrence, people look at crime doubt the power of deterrence but no one walks up to heavily armed guy without a weapon tries to extort money from him.

Monday, September 1, 2014

When retiring as Senate majority leader in 1994, George Mitchell, who left the Senate with the highest reputation for integrity, gave an exit interview to National Public Radio. To explain what made the long hours and aggravating work worthwhile, he recounted how, because of his position as majority leader, he was able to get the Clinton administration to reverse an order requiring the federal government to purchase recycled paper—presumably, a measure that would serve the common good—in order to protect the jobs of workers in paper mills in his home state of Maine. He then related how, a few weeks later, a mill worker came up to him “shaking with emotion” to tell him how much saving his job meant to him and how that moment was “indelibly imprinted on [his] mind” and was what “makes all the aggravation worthwhile.” All Things Considered: An Exit Interview with George Mitchell (NPRradio broadcast, October 17, 1994).

I doubt that the use of all recycled paper would really be i the public good but Mitchell did not claim that it was not in the public good. He implied that he did what he did in order to save the jobs of his constituents and though this might sound good at first glance once one thinks about it one should realize that it is imoral and corrupt. Is it not corruption to take from all to give to those who can vote for him with no other reason but they can vote for him?What about those congressmen who have military bases built in their districts? Even if it matters little for efficiency where the installations are built wouldn't it be more moral to put them where the most need is?In fact the most tender mercies of our politicians are corruption and rather than hide it they are outspoken about it.